Channel Strategies: Grocery store performance strengthens
This past year continued the trend of consumers opting for home cooked meals over dining out or ordering take out. Market research company The NPD Group, Port Washington, N.Y., found that 81 percent of U.S. households eat dinner at home and 47 percent of consumers report eating dinner with everyone in their household every night of the week.
“We found through our research that consumers derive the most enjoyment from preparing meals at home for their families,” said Dori Hickey, The NPD Group’s director of product management, in a statement. “When we assessed consumer satisfaction with their dinnertime food and beverage selections, we found that overall satisfaction was higher among consumers who made dinner at home compared to those who ate out or brought food in.”
While consumers may be enjoying cooking at home more, they also are cooking more often from scratch or with less convenient items to save money, research firm SymphonyIRI Group, Chicago, said in its Times & Trends report “2009 CPG Year in Review.” These habits have led budget-conscious shoppers to some pretty fundamental changes in shopping patterns.
“What we saw early on is what I would characterize as a bunch of trading down phenomenon, and it really started with people trading out of eating away from home,” says Jim Hertel, managing partner at research group Willard Bishop, Barrington, Ill. “You would have thought it would have been a net benefit for supermarkets, and, in fact, for some it was a good thing. But for many more, the trading down has been people trading out of national brands or exclusive national brand purchasing to include more private label purchasing. People who have always purchased private label in a number of categories, many of them are trading out of the supermarket overall and trading into things like limited assortment stores like Aldi, Save-A-Lot or other extreme value retailers and spending more of their dollars at the Wal-Marts of the world.”
Retailers that were equipped with good prepared food programs to get convenience shoppers who were eating at home and stores that had good private label programs in place performed better than their peers, Hertel says. “But, a lot of folks were caught a little bit flat footed and have seen customer counts and same store sales going down,” he says.
Grocery store performance was stronger compared to the industry as a whole, SymphonyIRI says. Grocers have invested heavily to change a long-perceived notion that their channel is more expensive versus others, it says. Grocers are locked in a price war with each other looking to lure consumers from other grocers and competing channels. Offering more private label products is where some of the battles take place. While many higher end grocery store chains were hit harder by the economic downturn, those upscale grocers with a good private label program performed better than those that did not, Willard Bishop’s Hertel says.
Private label holds nearly 20 percent in dollar share and approximately 26 percent in unit share of the entire consumer product goods category in the grocery channel, according to SymphonyIRI Consumer Network for the 52 weeks ending Dec. 27, 2009. Private label was flat in unit sales in 2009 vs. 2008 and up almost a point in dollar share, it says.
These efforts, in addition to increased emphasis on private label products, merchandising and customer service have benefitted the channel, SymphonyIRI says. In 2009, the grocery channel gained half a share point, while competing channels demonstrated flat to negative share performance, it says.
Average monthly shopping trips made positive gains as well in 2009. For the year, monthly trips increased nearly 4 percent from 2008 with an average of approximately five trips per shopper per month, SymphonyIRI says. The supermarket channel boasts more trips per month than any other channel, but dollar stores saw the largest growth for the year, increasing 7 percent over 2008. Much of the gains are attributed to a decline in gas prices, which have also helped consumers drive further in a quest to save money, the research firm says.
In April, Supervalu Inc., the Eden Prairie, Minn.-based supermarket holding company, announced that it reduced product offerings in 10 major food categories by 20 percent to free up money from suppliers and focus more on private label. Supervalu’s stores include Jewel, Shaw’s, Albertson’s and Save-A-Lot, and is one of several companies expected to cut product offerings. Reducing assortments makes sense when retailers study sales data, Hertel says.
“We’ve looked at some stores where there may be 30,000 items in the center of the store and as much as 15 to 20 percent of those items don’t get purchased even once in a two to three month period,” he says. “When you look at those kind of numbers, and you start thinking about, ‘Boy, do I really need to have all of that working capital tied up in inventory that’s not turning that fast?’”
Grocery stores also struggle with out-of-stocks running around 8 percent, Hertel says. “You start to realize it’s not just working capital tied up, but it’s taking the space that I could use much more productively whether it’s for private label or keeping in stock on the items that really are turning or both,” he says.
Product pricing also will be important to supermarkets this year. The way that many stores have tried to address pricing is by running promotions, Hertel says. “I don’t know that they are necessarily all that successful at it, but people are being very, very promotional these days,” he says. “It’s trying to be very sharp in terms of their price discounts and trying to collaborate with manufacturers to make sure that they are getting all the promotional funds that they possibly can.”
While promotions are one piece of the pricing puzzle, everyday shelf prices also need to be satisfactory to the customer. “It’s not as easy to do that and turn it around overnight,” Hertel says. “It’s an area that I think is still work that is out in front of a lot of retailers today.”
This year, consumers are not expected to be much looser with their spending habits. In turn, what Hertel expects to see from retailers that have been slow or reluctant to address consumers’ reactions to the state of the economy is to be acquired or consolidated out of existence. “I think we’re in for a tough slug for awhile, and there are going to be some people who will throw in the towel as a result of that,” he says. BI
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